Food brinkmanship in US
Over Christmas, money managers watched as the danger of a sharp decline in the US budget deficit increased daily — threatening a compulsory 50% deficit reduction that would trigger a mild recession in the US.
But the 11th-hour passage of the American Taxpayer Relief Act of 2012 saved the day — and world relief was reflected in the biggest stock market surge in six months.
For US farmers, relief was mixed.
On Christmas Day, on the CBS Evening News, a Texas rice grower spelled out his fiscal-cliff predicament. Without agreement in Washington, he could have faced losses of $1m — if he planted rice, and the market price fell from $12 to $6 in four months, and he wasn’t backed up by the Farm Bill (the US equivalent of the EU’s CAP).
It looks like he will be planting — because most of the Farm Fill’s $154bn in federal farm aid and crop insurance has been extended for one year in the fiscal-cliff resolution. Farm Bills are usually passed every five years. They provide certainty for farmers and the bankers who finance them — including, for example, the $10bn paid in 2012 by crop insurance companies to cover farmers’ losses in the devastating US drought of 2012.
Nevertheless, the one-year ‘patch’ will make long-term planning for US farmers difficult.
One year of work in Washington on the next five-year Farm Bill has been wasted, and must be restarted — most likely with less money for agriculture programmes.
It is thought that US dairy farmers are worst-affected, with less protection from higher feed costs. Livestock disaster programmes were left high-and-dry at a time of greatest need, after the worst drought in a half-century hit American ranches.
Millions of dollars in direct payments to crop growers will depend on how the US Department of Agriculture handles the Farm Bill extension.
With 42% of the US still in severe-to-exceptional drought, the added Farm Bill uncertainty is likely to affect global feed supplies from the US grain growers, who export 25% of their huge production. In other words, people could go hungry around the world because of political brinkmanship in the US — not to mention the knock-on effect of high grain prices for livestock farmers around the world.
It provides a timely lesson for EU leaders, who have a huge job of work ahead of them to agree the CAP reform — with our own Agriculture Minister Simon Coveney first to feel the pressure, in trying to conclude the reform before Ireland’s presidency of the EU ends on June 30.
It has been effectively confirmed that the reform of the CAP direct-payments system will have to be delayed by a year.
Farmers can only hope that if this comes to pass an adequate extension can be put in place for 2014 that will not leave them facing fiscal-cliff type uncertainty.
With 30% of the world’s food and drink exports between them, the EU and the US have huge responsibilities, not just to their farmers but to consumers everywhere.
